The softening evident in California's housing market will last several years, but its effect on the state's economy will be a slowdown, not a recession, according to an influential forecasting group.

Other than the decelerating real estate sector, "all has been steady as she goes" in the state's economy this year, said Ryan Ratcliff, an economist with the UCLA Anderson Forecast, which releases its quarterly report on California today.

Even in real estate, there were not any surprises, Ratcliff said. After multiple years of double-digit price inflation, housing prices, as expected, have flattened across the state and even declined in some areas, a trend that the UCLA forecasters expect to continue.

"If you buy a home today, you could sell it for about the same price in five years," said Ed Leamer, director of the UCLA Anderson Forecast. Of course, after accounting for inflation, the house's real value would have declined, he noted. UCLA is predicting that consumer prices will rise 4.5 percent this year, 3.3 percent in 2007 and 2 percent in 2008.

Leamer predicts California real estate will remain sluggish for a long time -- at least five years -- but with little price deterioration other than the failure to keep up with inflation.

"Relative to the historical norm, California homes are about 60 percent overpriced," he said. "It takes five years to get rid of that." After that period, he expects home prices to appreciate at a rate about 2 percent above the inflation rate.

While the real estate slowdown will result in job losses in the once-booming construction sector, Ratcliff said he expects other sectors to continue to perform well. That means a recession is unlikely, because historically they are caused by at least two sectors giving a one-two punch to the economy, he said. "There's not another sector other than real estate to be the second half of the double whammy," he said.

Although mortgage brokers, mortgage lenders and real estate agents are likely to experience job losses, strong growth in other financial-services activities such as insurance and securities will buoy that sector, he said.

Overall, UCLA is predicting that nonfarm payroll employment will grow 1.4 percent this year, a little less than last year's 1.8 percent growth. It predicts growth of 0.9 percent in 2007, followed by 1.2 percent growth in 2008.

The Business Forecasting Center at the University of the Pacific in Stockton issued its own forecast for California this week, paralleling many of the conclusions in the UCLA report. Sean Snaith, a consultant to the center, said it views California's housing market as a souffle, not a bubble.

"A bubble is fueled by speculation, evocative of the dot-com bubble, the Dutch tulip bulb bubble," Snaith said. "There are more ingredients in housing -- demographics with the Baby Boom generation in their peak home-buying years, record-low mortgage rates, strong underlying personal income growth, low unemployment, high job creation. Those are all important factors to fuel housing demand."

The souffle analogy works as well in explaining what will happen to housing in coming months and years, he said. "A bubble always ends in a dramatic and spectacular fashion as we saw with the dot-com collapse. This (housing souffle) came out of the oven in 2005 and is sitting there on the cooling rack. As long as the ingredients are still there, the souffle has no reason to collapse."

Another factor that should help the overall economy is that energy prices are retreating, giving consumers a sense that they have more money to spend.

"The economy in general is moderating," Snaith said. "I think the soft landing is still the story at this point. There were some concerns it might be the JetBlue landing where the front gear goes sideways and there are sparks and flames and everyone gets scared, but we're still OK."

Cooling economy

Among the predictions made by UCLA forecasters in the report on the California economy released today:

-- Real estate prices to remain flat for about five years.

-- After five years, real estate appreciation of 2 percent above inflation.